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3 May 2022

Wireless growth becomes increasingly critical in the USA as broadband slows

As the USA’s broadband market gets tougher, after the boost of work-from-home policies during the pandemic, it is increasingly vital for operators to invest in gaining mobile growth and market share. Companies that are primarily driven by wireless, such as Verizon, will become more so, as broadband losses must be offset by cellular gains. And relative newcomers to the mobile market, such as the leading cablecos, are likely to redouble their efforts as their traditional broadband and video revenues stagnate.

In its most recent quarter, the largest US cableco, Comcast, reported its highest quarterly wireless subscriber growth to date, at the same time as losing over half a million video subscribers and seeing broadband gains slowing year-on-year.

Comcast added 318,000 mobile lines in Q1, a record since it launched Xfinity Mobile, powered by an MVNO deal with Verizon, in 2017. It ended the quarter with 4.29m mobile users and wireless revenues of $677m, up from $513m a year earlier. But it gained only 262,000 broadband subscribers, down from gains of 461,000 a year ago, though it did beat Wall Street expectations in this sector and boosted broadband revenues from $5.6bn to $6.05bn.

Some of the gains were actually of users who had received free services during the pandemic relief programs and are now starting to pay for services. But with growth in broadband and also in business services, up 10.6% in revenue terms of $2.2bn, Comcast might have been relatively sanguine if it weren’t for the core video business, where it lost 512,000 pay-TV customers, and saw revenue fall from $5.62bn to $5.53bn.

So mobile is increasingly strategic, as is Comcast’s partnership with the second largest cableco, Charter, to develop new 5G platforms and services. This may even see the companies building out 5G networks of their own in certain areas. CEO Dave Watson said mobile services were now “fully integrated into everything we do in cable … we absolutely believe our strategy is working.”

Although cablecos still have a tiny percentage of the US mobile market, it is not just Comcast that is growing. The top three operators – Comcast, Charter and Altice USA – added 698,000 mobile lines between them in the quarter, while the three major MNOs,  AT&T, T-Mobile and Verizon, added 1.24m between them.

Charter was the most successful of the cable challengers with 373,000 mobile net additions, well above the 300,000 net adds of the year-ago quarter, and it now has 3.9m mobile lines, up 47.2% year-on-year. Mobile revenue jumped 40.2% to $690m, though this was more than offset by costs that totalled $760m. Mobile now accounts for over 5% of total Charter revenue after 3.5 years of offering these services.

Altice USA recorded 12,000 net adds and a total mobile base of 198,000 lines for its Optimum Mobile service, and this translated to a 25% year-on-year increase in mobile revenue to reach $24m.

Altice USA CEO Dexter Goei told analysts: “We believe that as we continue to adjust our mobile and converged offerings, we can maintain a high level of mobile customer growth going forward and expect this will help improve broadband customer churn as well.”

While such results inevitably lead to speculation that the cablecos will start to invest in their own networks and spectrum – possibly in partnership with one another – or even seek to buy an MNO, Wall Street analysts at MoffettNathanson analysts think they should resist this temptation and continue to focus on owning WiFi. In an research note, the analysts wrote: “Cable’s hybrid MVNO/MNO isn’t a poor man’s substitute for an owned-and-operated network, it’s actually better. Over time, Charter and Comcast will move more and more traffic onto their own networks, leveraging their existing infrastructure for low-cost backhaul.” Charter says 85% of its customers’ mobile usage flows through its WiFi network.

At wireless-led companies, the shift of revenues and growth from wireline to mobile is also clear. Verizon announced better-than-expected subscriber gains in its fixed wireless access (FWA) business in the first quarter (see Wireless Watch April 25 2022), adding a net 194,000 users, which was important to mitigate slowdown in the wireline broadband unit. Here, Verizon added 55,000 residential Fios Internet customers in the quarter, a smaller gain than a year ago, when it added 98,000; and added 37,000 residential wireline broadband subs, compared to 66,000 in the year-ago quarter.